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Hotel and Tourism Industry

Opportunities in Sector

Considering India’s vast culture and beauty, a vast surge in tourists has resulted in more demand for hotel rooms, guest house etc.

The Indian hospitality industry has emerged as one of the key industries driving growth of the services sector in India. The fortunes of the hospitality industry have always been linked to the prospects of the tourism industry and tourism is the foremost demand driver of the industry. The Indian hospitality industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country and it has become one of the leading players in the global industry.

Trends in the Industry

1. Budget Hotels as the next trigger

2. Medical Tourism

3. New avenues of growth

4. Shifting focus to Tier II and Tier III cities

5. Marketing Strategies

6. Emergence of Mixed Land Usage

7. Huge spurt of international brands

8. Innovative operating models

The Indian hotel industry is highly fragmented with a large number of small and unorganized players accounting for a lion’s share. The major players in the organized segment include Indian Hotels Company Ltd, Hotel Leela Venture Ltd, EIH Ltd, ITC Hotels and ITDC.

The industry is likely to experience robust growth on the back of rising disposable incomes and favorable industry statistics. The market is estimated to reach US$ 30 billion by 2015.

Scope of the industry

Indian Hotel and Tourism Industry

Demand-supply scenario in the Industry

Proposed investments by domestic and foreign players

Factors driving growth, Issues & Challenges

Key operating characteristics like occupancy rates, revenue per available room (RevPAR) and average room rates (ARR)

1. Natural and cultural diversity : India has a rich cultural heritage. The "unity in diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of Kerala, snow capped Himalayas and the quiescent lakes are incredible.

2. Demand-supply gap : Indian hotel industry is facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector

3. Government support: The government has realized the importance of tourism and has proposed a budget of Rs. 540 crore for the development of the industry. The priority is being given to the development of the infrastructure and of new tourist destinations and circuits. The Department of Tourism (DOT) has already started the "Incredible India" campaign for the promotion of tourism in India.

4. Increase in the market share: India's share in international tourism and hospitality market is expected to increase over the long-term. New budget and star hotels are being established. Moreover, foreign hospitality players are heading towards Indian markets.

Weakness

1.Poor support infrastructure: Though the government is taking necessarysteps, many more things need to be done to improve the infrastructure. In 2003, the total expenditure made in this regard was US $150 billion in Chinacompared to US$ 21 billion in India.

2.Slow implementation: The lack of adequate recognition for the tourismindustry has been hampering its growth prospects. Whatever steps are being taken by the government are implemented at a slower pace.

3.Susceptible to political events: The internal security scenario and social unrest also hamper the foreign tourist arrival rates.

Opportunities

1.Rising income: Owing to the rise in income levels, Indians have more spare money to spend, which is expected to enhance leisure tourism.

2.Open sky benefits: With the open sky policy, the travel and tourism industry has seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels.

Threats

1. Fluctuations in international tourist arrivals: The total dependency on foreign tourists can be risky, as there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance and measures should be taken to promote it.

2.Increasing competition: Several international majors like the Four Seasons, Shangri-La and Aman Resorts are entering the Indian markets. Two other groups - the Carlson Group and the Marriott chain - are also looking forward to join this race. This will increase the competition for the existing Indian hotel majors.